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spk07: Good day and thank you for standing by. Welcome to the Altisource Portfolio Solutions first quarter 2024 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded.
spk06: I would now like to hand the conference over to your first speaker today, Michelle Esterman, Chief Financial Officer. Thank you, Operator.
spk05: We first want to remind you that the earnings release, Form 10-Q, and quarterly slides are available on our website at www.alcesource.com. These provide additional information investors may find useful. Our remarks today include forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ. Financial projections and scenarios are expressly qualified as forward-looking statements, and as with other forward-looking statements, should not be unduly relied upon. In addition to the usual uncertainty associated with forward-looking statements, the continuing impacts of government and servicer responses to the COVID-19 pandemic, governmental fiscal policies and current economic conditions make it extremely difficult to predict the future state of the economy and the industries in which we operate, as well as the potential impact on HealthySource. Please review the forward-looking statements sections in the company's earnings release and quarterly slides, as well as the risk factors contained in our 2023 Form 10-K, describing some factors that may lead to different results. We undertake no obligation to update statements, financial scenarios, and projections previously provided or provided herein as a result of a change in circumstances, new information, or future events. During this call, we will present both GAAP and non-GAAP financial measures. In our earnings release and quarterly slides, you will find additional disclosures regarding the non-GAAP measures. A reconciliation of GAAP to non-GAAP measures is included in the appendix to the quarterly slides. Joining me for today's call is Bill Shepro, our Chairman and Chief Executive Officer. I will now turn the call over to Bill.
spk11: Thanks, Michelle, and good morning. I'll begin on slide four.
spk14: I'm very pleased with our first quarter performance. We generated $4.6 million of adjusted EBITDA, marking our best quarterly performance since the third quarter of 2020, on $36.9 million of service revenue. We believe our financial results and sales wins demonstrate that we are not waiting for the default market to return to normal or for delinquency rates to rise to achieve growth. We improved adjusted EBITDA by more than $30 million over the last two calendar years in an incredibly difficult environment of low origination volume coupled with close to historically low mortgage delinquency rates. For 2024, In what continues to be a difficult environment, we forecast that we will grow revenue by 23% and adjusted EBITDA by $21 million compared to last year at the midpoint of our guidance. If achieved, this represents an adjusted EBITDA improvement of approximately $52 million over the three-year period. For the balance of this year, we anticipate quarter-over-quarter service revenue and adjusted EBITDA growth compared to the same quarters in 2023 as we continue to ramp sales wins and win new business on a lower cost base. And as the default market returns to normal and origination volumes increase, Altasource should benefit even more. In our servicer and real estate segment, we are winning market share. Of the three exciting servicer and real estate pipeline opportunities I discussed with you last month, we entered into agreements with two, one in March and one this month. We anticipate signing a third agreement this quarter. In our origination segment, we are increasing adoption of our solutions that help originators save money. During the quarter, we signed another 13 agreements for our tri-merge credit product and related reseller services. We are already seeing the benefit of our growth initiatives and believe this will be reflected in our financial results as the year progresses. I'll discuss our sales progress and pipeline in more detail in a few minutes. Slide five provides additional information on our financial performance and trends. Total company service revenue grew 15% compared to the fourth quarter of 2023, with 11% growth in the service and real estate segment and 30% in the origination segment. Compared to the first quarter of 2023, total company service revenue was almost flat, driven by growth in the origination segment, offset by a decline in the service and real estate segment from an estimated $1 million of one-time revenue in March 2023. Company-wide adjusted EBITDA of $4.6 million was $4.4 million higher than the fourth quarter and $3.2 million higher than the first quarter of 2023 and represents 23% of the midpoint of our 2024 guidance we provided on our fourth quarter call. Adjusted EBITDA margins expanded to 12.6% in the first quarter of 2024 compared to 0.7% in the fourth quarter of 23 and 4% in the first quarter of 23. First quarter 2024 total company adjusted EBITDA included an estimated $600,000 in non-recurring net benefits and first quarter last year included an estimated $2.1 million in non-recurring net benefits. Total company improvement was driven by margin expansion in both of our segments and lower corporate costs. Over the last couple of years, we have provided you with a run rate scenario to demonstrate what AlphaSource's run rate revenue and adjusted EBITDA could look like in a normal pre-pandemic default operating environment while holding the origination segment constant. While we believe that our 2024 guidance takes a conservative approach to the recovery of the default market, We also believe the market will return to a more normal environment in time. Loans originated over the last couple of years after a massive increase in home values generally don't have the same level of home equity compared to loans originated before then. In addition, FHA loans are typically originated with only 3% down, providing a much lower equity cushion, even with home price appreciation over the last several years. Of course, we are not waiting for the market to recover to seek to grow our business. We have a strong suite of solutions that we believe support both the servicer and origination markets and are winning new business. To help you understand the magnitude of the revenue and earnings opportunity from our sales wins in both segments, we are providing a financial scenario on slide six. The scenario annualizes and adjusts our first quarter performance to exclude non-recurring items and as estimated fully ramped service revenue and adjusted EBITDA related to business we have already won net of an assumed level of churn. As you can see on the slide, ramping estimated revenue from existing sales wins at estimated EBITDA margins could increase first quarter 2024 annualized service revenue from $147 million to $219 million and adjusted EBITDA from $16 million to $35 million. This doesn't assume any further wins from our current sales pipeline, a normal default operating environment, revenue from the launch of new LendersOne solutions, an increase in delinquency rates, nor a return to a higher level of origination volume. We have made tremendous progress winning new business and improving our operational efficiency in a tough market. We believe this scenario illustrates the bright future ahead for Altasource. as we ramp our sales wins with additional growth potential. Slide seven provides additional information on our service and real estate segment. First quarter 2024 service revenue in this segment was 11% higher than the fourth quarter of 2023 and 2% lower than the first quarter of 2023. If you exclude the estimated $1 million of non-recurring revenue from the first quarter of last year, revenue for the first quarter of this year would have been modestly higher than the first quarter of last year. We continue to experience growth in certain higher margin businesses that support the earlier stage of the default process. Adjusted EBITDA of $10.4 million was 21% higher than the fourth quarter of 2023 and 6% lower than the first quarter of last year. Adjusted EBITDA margins were 35.8% in the first quarter of 2024 compared to 32.9% in the fourth quarter of 2023 and 37.4% in the same period last year. The improvement compared to last quarter reflects our efficiency initiatives, partially offset by an estimated $600,000 in net non-recurring expenses in the first quarter of this year. First quarter 2023 margins were modestly higher from an estimated $1 million of prior year non-recurring revenue the majority of which increase adjusted EBITDA and the estimated $600,000 of current year net non-recurring expenses I just discussed. Slide eight provides a summary of our servicer and real estate sales wins and pipeline. For the quarter, we won new business that we estimate will generate $6.3 million in annual revenue on a stabilized basis over the next couple of years. Last quarter, I highlighted three larger late-stage opportunities in the pipeline. Toward the end of the first quarter, we signed the agreement to provide REO auction services for a loan servicer. In April, we signed an agreement to provide foreclosure trustees services for a loan servicer and anticipate signing the second trustee agreement this quarter. We have completed the onboarding process for both WINS and began receiving referrals this month. These wins represent an expansion of services that we provide to existing customers. We also made progress ramping sales wins from 2023. In the fourth quarter of 2023, we signed agreements to provide REO renovation services for one of the larger owners of REO assets. We received our first renovation referrals last week. We anticipate referral volume from this customer will ramp as the year progresses. Another fourth quarter win was an expansion of wallet share with an existing customer in our higher margin trustee business. We started to receive an increase in referrals in January, which continued to grow through the quarter. We anticipate these referral volumes to ramp through the summer and stabilize thereafter. We ended the quarter with a total weighted average sales pipeline of $26.7 million of annual revenue on a stabilized basis. most of which we forecast will impact 2025 and beyond. The decline in the sales pipeline compared to last quarter primarily reflects our sales wins. Turning to the macroeconomic environment in slide nine. As we discussed on our call in March, we continue to believe that there are early signs of consumer financial stress and that these could be precursors to a rise in mortgage delinquency rates. Moving to our origination segment and slide 10. Our origination segment performed very well. Despite the 6% decline in industry-wide residential origination volume in the first quarter compared to the fourth quarter of 2023, the origination segment outperformed the market with service revenue growth of 30% and an adjusted EBITDA improvement of $900,000 to $500,000. We also grew service revenue by 7% and adjusted EBITDA by $1.2 million compared to last year. Revenue growth was driven by customer wins from our newer solutions and price increases in the LendersOne business. Adjusted EBITDA improved from revenue growth and cost savings and efficiency initiatives. As you can see on the slide, the origination segments gross profit, gross profit margins, adjusted EBITDA, and adjusted EBITDA margins all improved relative to prior quarters. Slide 11 provides a summary of our origination segment sales wins and pipeline. We continue to focus on helping our LendersOne members save money and better compete. This is driving substantial interest in our solutions. On an annualized, stabilized basis, we won an estimated $4.2 million in new business in the first quarter. Our weighted average sales pipeline at the end of the quarter was $13.9 million. We are excited about our progress in the origination segment. During difficult times, lenders are more diligently examining their costs, and we are winning a lot of new business as a result. With sustained low origination volumes, we have been provided an attractive window of opportunity. We expect to benefit from this growth both today and even more when origination volumes return to more normal levels. Additionally, we continue to focus on rolling out new solutions to help our LendersOne members make more money. We believe the regular launch of new solutions to LendersOne members, combined with greater adoption of our existing solutions, will strengthen our value proposition for LendersOne members and support further revenue and earnings growth in our origination segments. Turning to our corporate segment in slide 12, we continue to bring down our operating costs. First quarter 2024 corporate adjusted EBITDA loss of $6.3 million was $1.8 million or 22% better than the fourth quarter of 2023 and $2.7 million or 30% better than the first quarter of 2023. The first quarter 2024 results included an estimated $1.2 million of net non-recurring benefits, and the first quarter of 2023 included an estimated $1.3 million of non-recurring benefits. Absent these benefits, first quarter 2024 adjusted EBITDA loss in corporate was 4% better than the fourth quarter 2023 and 25% better than the first quarter 2023.
spk12: The lower adjusted EBITDA loss also reflects our cost savings and efficiency initiatives. Moving to slide 13.
spk14: In summary, I'm pleased with our first quarter performance. We continue to win meaningful new business and are making good progress ramping 2023 sales wins in a historically difficult market. As a result, we anticipate that we will generate quarterly year-over-year service revenue and adjusted EBITDA growth compared to the same quarters in 2023 for the balance of the year. We believe we are also on track to achieve 13 to 32% service revenue growth over 2023 and adjusted EBITDA of between $17.5 and $22.5 million in 2024. If achieved, this represents an adjusted EBITDA improvement of approximately $52 million over a three-year period.
spk12: I'll now open up the call for questions. Operator?
spk06: Thank you.
spk07: And at this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again, and then please stand by now as we compile our Q&A. First question comes from Mike Grondahl, with Northland. Mike, go ahead. Your line is open.
spk04: Hey, thank you. Just trying to think through, Bill, kind of your latest thoughts on when foreclosure sales might ramp. And is there any other leading indicator we should look to? You know, delinquent GSE loans, macro things on job loss, but where's your head kind of today for that ramp? And I don't know, what are you looking to to help you kind of benchmark it?
spk14: Yeah. Hey, Mike, thanks for the question. So I guess the first point I want to make is we're not waiting for the market to recover, you know, the default market to get back to normal or for delinquency rates to rise to improve our revenue and earnings. I think that's a really important message. But then specifically to your question, Mike, Look, I think the market is recovering less than we at a slower pace than we expected. You know, I thought, you know, given those precursors, you know, rise in auto delinquencies, credit cards, student loan delinquencies, you know, we all thought these were good, solid indicators of what ultimately was going to happen or what ultimately should happen with mortgage delinquency rates. But today they're sitting, you know, roughly flat to where they were a year ago. And so we're paying close attention, and we do anticipate that over time the market will get back to normal. If you look, and I talked a little bit about this in my prepared remarks, if you look at loans originated, you know, and there's several million loans originated over the last couple of years that followed the run-up in home prices. And if you look at FHA loans that have 97% loan to value, there's even with the run up of home prices over the last couple of years, there's not a lot of equity in those homes. And so I think as the economy, as things get back to normal, you would expect the operating environment for those more recent cohorts of loan originations to return to a more normal operating environment. And by the way, I think Mike, if, if the market, we did run the math and say, what happens if the market were to get back to normal to this scenario we presented today. And I think you would see, you know, on a, when we, when we look back to the run rate scenario we've provided, I think in the third or fourth quarter of last year, you know, and, and we, uh, uh, we account for some, uh, potential runoff of, of our anchor client, uh, portfolios and, uh, and some other churn from customers. I mean, we could, in a normal environment, add another $30 million roughly of adjusted EBITDA to the scenario we presented today. So on top of the, I think it was 35 million of adjusted EBITDA in our scenario, you could add as much as another $30 million of EBITDA. Now, there may be a little bit of additional fixed costs we would add, but the EBITDA becomes quite interesting as that market recovers. So it's hard for us to tell when it's going to recover. We think some of the early signs exist, you know, that there could be some stress in the market, but we're not waiting for that to happen to grow our revenue and earnings.
spk04: Got it. And then two questions kind of related to slide 17. The first one, you know, the consolidated sales pipeline and when you guys had a bunch of wins in 23, right? Like $68 million worth. And you've cumulatively got about 8 million of that into revenue. If we look at the same time period, those five quarters presented, how should we think about the next? I don't know. I'll call it the remaining 60 million flowing into revenue.
spk14: yeah no that's a very good question mike so i think look what you're going to see is we're now ramping and you see that on the bottom row of that slide 17 where we did i think three and a half million so we are starting to ramp it you're going to see that we're going to continue to ramp uh the sales wins as the year progresses you know when we and look when we get to the fourth quarter we're not going to be quite at that uh run rate but i i think from an ebitda perspective you know, we're expecting to be north of a $30 million EBITDA run rate if you annualize our fourth quarter performance. So you're going to start to see the benefit. And again, we're being very conservative on the default market recovering. This is primarily from ramping sales wins on a more efficient cost base or lower cost base.
spk04: Got it. And then, you know, that's helpful, that exit run rate. And then my last question is, On the top line, attractive sales pipeline, I sort of get 3Q23, 4Q23. You know, those numbers were kind of flattish, and I think a chunk of the pipeline went down into wins. But then if I go 4Q23 to 1Q24, yes, you had 10 million fallout to wins. but the number dropped by about 8 million. Are you happy where your pipeline is? Do you kind of need to rebuild some of that now? Or, I don't know, just help us think about that pipeline, the size of it. What does it need to be to kind of continue to support these wins?
spk14: Yeah, I think you're right, Mike. The reason for the drop primarily reflects the sales wins. And we have some know pretty meaningful sales win you're going to see uh i think there's a footnote about it but in april we had a pretty good sales win that i talked about in my prepared remarks related to our trustee business we think we're going to sign a second agreement hopefully this quarter which will go into the win column as well look we're never happy with the sales pipeline we always want it to be bigger mike and we've got a really a strong sales team that's done a very nice job of building the pipeline uh you know winning market share in a really tough market today, particularly on the default side. And so I'm pleased with the progress we're making, but I'm never, you know, I always want that pipeline to be bigger. And we talk about it internally, not just this quarter, but each quarter we set pretty aggressive goals around how we want to grow the pipeline. But we feel good. This is a weighted average pipeline, keep in mind. The actual pipeline is much higher than that.
spk04: Got it. Got it. Okay. Well, hey, that color is helpful. Thanks and good luck.
spk12: Thanks, Mike.
spk06: One moment for our next question. Our next question comes from Raj Sharma with B Reilly.
spk07: Raj, go ahead. Your line is open.
spk03: Yeah. Hi. So, congratulations on the increase in profitability. I wanted to ask you some questions on this slide. You know, earlier stage, the business wins that are contributing to $88 million in annualized revenue increase, how is that split? You know, that's slide six. How is that split between the default services and the market? I mean, I'm assuming that has nothing to do with the HUBZoo side, the marketplace, and also how does that split with originations?
spk14: Sure. So, hey, Raj, let me turn to that slide. You know, the service revenue scenario. Yeah, so you're on slide six. Yes. So of that $88 million, I would say a meaningful portion of that is tied to the growth of our renovation business. Then some of it is tied to the growth of these trustee wins. And I think this is sales wins through April 20th or so. It may be April 24th. So this includes the trustee business. The renovation business would probably be the two, the renovation being the largest, then the two trustee wins. And then the next largest would be probably, I don't have that right in front of me, but I think some of that REO auction work that we're doing for a loan servicer, that's a market share gain. And then there's some in the origination side, but it's pretty small, relatively speaking, compared to what's the growth in the servicer and real estate segment. So I think just to repeat, largely it's the renovation business, the two trustee wins, and then the REO auction business. There's a little bit of title wins in there as well.
spk03: Right. So all this is, if I'm correct in understanding, all these wins are in the earlier stage of the foreclosure process, basically. If the foreclosures market is not moving up considerably, and, you know, there's more loss mitigation, and there's more loan modifications, and other early... So this is the earlier stage. Could you talk about the trustee? Is, you know, the trustee referral expansion business, you are taking share there, and that's largely all of, you know, the gains, but are you... Do you make much money if there is... there's loss mitigation, loan modifications?
spk14: Yeah, so we're a foreclosure trustee, and I think it's 11 or 12 states. And there's milestone billing, Raj. And we're not assuming that each foreclosure file we receive makes it all the way through the end of the process. But in the milestone billing process, I think you're probably billing 60 or 70 percent of the total fees in the first couple months of receiving the referral. So it's not dependent on making it all the way through the end. And our analysis or forecast of what the revenue could look like on a stabilized basis is in today's market, not in a rising delinquency rate environment or a more normal delinquency environment. And yes, it's a very profitable business for us.
spk03: Got it. And then on the cost base, so clearly you've had some cost cuts and that's contributed and the increase in revenues contributed to the increase in profitability. Are you done with the cost cuts or your cost base currently is that to stay or are there more cost cuts to come more? You know, we haven't seen some of them.
spk14: Yeah, so let's talk just first about on the corporate side, there were some one-time benefits we got in the first quarter, but even if you normalize for those one-time benefits, we still brought the cost down compared to the fourth quarter. So we won't, we're not anticipating those one-time benefits to continue in future quarters. I think there's some modest, and Michelle jumped in, savings in corporate in the second half of the year. Michelle?
spk05: That's right. It's in corporate tech. It's in the technology and communications line.
spk14: Yeah, so I think you'll see a little bit of savings there, maybe just a little bit in occupancy as well, a modest amount. But for the most part, I think we don't have any new set of initiatives beyond what's already been planned for the rest of the year. And then when you look at the business units, Raj, there will be a little bit of ramping of some costs in the second quarter. in anticipation of what we think is going to be very meaningful growth going into the third and fourth quarter. But that would just be sort of a normal, you know, you would expect there's going to be some hiring in advance of that revenue coming in in the second quarter. So we expect some modest revenue growth in Q2 compared to Q1. But EBITDA, there'll be a modest impact to EBITDA given some of the hiring in advance of this revenue getting to sort of a stabilized level. But we think that's very good hiring and certainly in line with our margin expectations. The new business is certainly in line with our margin expectations.
spk03: Got it. And just a couple more questions, if you can bear with me. The new, you know, obviously you are focusing on the earlier stage of the foreclosure process. You're having wins there. There is the normal run rate. scenario that you have talked about in the past, you know, 45 million of EBITDA and 235 million of revenues. How does that change? That changes incrementally by this 88 million.
spk14: Yeah, Raj, I think that's a very good question. Look, we did a bit of a back of the envelope, and there's, of course, several assumptions that go into how we think about this. But if the market were also to get back to normal, And now we're assuming that, you know, of our anchor portfolios, they continue to run off over the next couple of years. And we're also assuming a little bit of a churn on our pre-pandemic legacy business. If you take that into consideration and we're back to a normal operating environment, roughly at normal, you know, at pre-pandemic delinquency levels, we think EBITDA could grow by as much as what, Michelle, close to, you know, $20, $25 million. That's probably closer to 25. And your revenue would grow by as much as $60 million above the scenario we presented today. So there's a lot of upside, even if delinquency rates just stay at the historically low levels, but the market gets back to normal. You know, the foreclosure initiations and foreclosure sale conversion rates gets back to normal. There's a lot of upside. In addition, our scenario we presented today doesn't include sales that take place beyond April 20th. you know, as we continue to win new business, that should improve our performance as well. We're just isolating the first quarter and pro forma analyzing the sales wins we've already had.
spk02: Got it. Thank you for, that's really good color. Thank you for taking my questions. I'll take this offline. Thank you. Thank you, Raj.
spk07: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Bill Shepro for closing remarks.
spk14: Great. Thanks, operator. We're very pleased with our first quarter financial performance and believe we're well positioned for the rest of this year and beyond. And thanks for joining today.
spk07: Thank you for your participation in today's conference.
spk06: This does conclude the program. You may now disconnect. Thank you. Bye. Thank you. music music you Thank you. you Good day, and thank you for standing by.
spk07: Welcome to the Altisource Portfolio Solutions first quarter 2024 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.
spk06: I would now like to hand the conference over to your first speaker today, Michelle Esterman, Chief Financial Officer. Thank you, Operator.
spk05: We first want to remind you that the earnings release, Form 10-Q, and quarterly slides are available on our website at www.alcesource.com. These provide additional information investors may find useful. Our remarks today include forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ. Financial projections and scenarios are expressly qualified as forward-looking statements, and as with other forward-looking statements, should not be unduly relied upon. In addition to the usual uncertainty associated with forward-looking statements, the continuing impacts of government and servicer responses to the COVID-19 pandemic, governmental fiscal policies and current economic conditions make it extremely difficult to predict the future state of the economy and the industries in which we operate, as well as the potential impact on HealthySource. Please review the forward-looking statements sections in the company's earnings release and quarterly slides, as well as the risk factors contained in our 2023 Form 10-K describing some factors that may lead to different results. We undertake no obligation to update statements, financial scenarios, and projections previously provided or provided herein as a result of a change in circumstances, new information, or future events. During this call, we will present both GAAP and non-GAAP financial measures. In our earnings release and quarterly slides, you will find additional disclosures regarding the non-GAAP measures. A reconciliation of GAAP to non-GAAP measures is included in the appendix to the quarterly slides. Joining me for today's call is Bill Shepro, our Chairman and Chief Executive Officer. I will now turn the call over to Bill.
spk14: Thanks, Michelle, and good morning. I'll begin on slide four. I'm very pleased with our first quarter performance. We generated $4.6 million of adjusted EBITDA, marking our best quarterly performance since the third quarter of 2020, on $36.9 million of service revenue. We believe our financial results and sales wins demonstrate that we are not waiting for the default market to return to normal or for delinquency rates to rise to achieve growth. We improved adjusted EBITDA by more than $30 million over the last two calendar years in an incredibly difficult environment of low origination volume coupled with close to historically low mortgage delinquency rates. For 2024, In what continues to be a difficult environment, we forecast that we will grow revenue by 23% and adjusted EBITDA by $21 million compared to last year at the midpoint of our guidance. If achieved, this represents an adjusted EBITDA improvement of approximately $52 million over the three-year period. For the balance of this year, we anticipate quarter-over-quarter service revenue and adjusted EBITDA growth compared to the same quarters in 2023 as we continue to ramp sales wins and win new business on a lower cost base. And as the default market returns to normal and origination volumes increase, Altasource should benefit even more. In our servicer and real estate segment, we are winning market share. Of the three exciting servicer and real estate pipeline opportunities I discussed with you last month, we entered into agreements with two, one in March and one this month. We anticipate signing a third agreement this quarter. In our origination segment, we are increasing adoption of our solutions that help originators save money. During the quarter, we signed another 13 agreements for our tri-merge credit product and related reseller services. We are already seeing the benefit of our growth initiatives and believe this will be reflected in our financial results as the year progresses. I'll discuss our sales progress and pipeline in more detail in a few minutes. Slide five provides additional information on our financial performance and trends. Total company service revenue grew 15% compared to the fourth quarter of 2023, with 11% growth in the service and real estate segment and 30% in the origination segment. Compared to the first quarter of 2023, total company service revenue was almost flat, driven by growth in the origination segment, offset by a decline in the service and real estate segment, from an estimated $1 million of one-time revenue in March 2023. Company-wide adjusted EBITDA of $4.6 million was $4.4 million higher than the fourth quarter and $3.2 million higher than the first quarter of 2023 and represents 23% of the midpoint of our 2024 guidance we provided on our fourth quarter call. Adjusted EBITDA margins expanded to 12.6% in the first quarter of 2024 compared to 0.7% in the fourth quarter of 23 and 4% in the first quarter of 23. First quarter 2024 total company adjusted EBITDA included an estimated $600,000 in non-recurring net benefits and first quarter last year included an estimated $2.1 million in non-recurring net benefits. Total company improvement was driven by margin expansion in both of our segments and lower corporate costs. Over the last couple of years, we have provided you with a run rate scenario to demonstrate what AlphaSource's run rate revenue and adjusted EBITDA could look like in a normal pre-pandemic default operating environment while holding the origination segment constant. While we believe that our 2024 guidance takes a conservative approach to the recovery of the default market, We also believe the market will return to a more normal environment in time. Loans originated over the last couple of years after a massive increase in home values generally don't have the same level of home equity compared to loans originated before then. In addition, FHA loans are typically originated with only 3% down, providing a much lower equity cushion, even with home price appreciation over the last several years. Of course, we are not waiting for the market to recover to seek to grow our business. We have a strong suite of solutions that we believe support both the servicer and origination markets and are winning new business. To help you understand the magnitude of the revenue and earnings opportunity from our sales wins in both segments, we are providing a financial scenario on slide six. The scenario annualizes and adjusts our first quarter performance to exclude non-recurring items and as estimated fully ramped service revenue and adjusted EBITDA related to business we have already won net of an assumed level of churn. As you can see on the slide, ramping estimated revenue from existing sales wins at estimated EBITDA margins could increase first quarter 2024 annualized service revenue from $147 million to $219 million and adjusted EBITDA from $16 million to $35 million. This doesn't assume any further wins from our current sales pipeline, a normal default operating environment, revenue from the launch of new LendersOne solutions, an increase in delinquency rates, nor a return to a higher level of origination volume. We have made tremendous progress winning new business and improving our operational efficiency in a tough market. We believe this scenario illustrates the bright future ahead for Altasource, as we ramp our sales wins with additional growth potential. Slide seven provides additional information on our service and real estate segment. First quarter 2024 service revenue in this segment was 11% higher than the fourth quarter of 2023 and 2% lower than the first quarter of 2023. If you exclude the estimated $1 million of non-recurring revenue from the first quarter of last year, revenue for the first quarter of this year would have been modestly higher than the first quarter of last year. We continue to experience growth in certain higher margin businesses that support the earlier stage of the default process. Adjusted EBITDA of 10.4 million was 21% higher than the fourth quarter of 2023 and 6% lower than the first quarter of last year. Adjusted EBITDA margins were 35.8% in the first quarter of 2024 compared to 32.9% in the fourth quarter of 2023 and 37.4% in the same period last year. The improvement compared to last quarter reflects our efficiency initiatives, partially offset by an estimated $600,000 in net non-recurring expenses in the first quarter of this year. First quarter 2023 margins were modestly higher from an estimated $1 million of prior year non-recurring revenue, the majority of which increase adjusted EBITDA, and the estimated $600,000 of current year net non-recurring expenses I just discussed. Slide 8 provides a summary of our servicer and real estate sales wins and pipeline. For the quarter, we won new business that we estimate will generate $6.3 million in annual revenue on a stabilized basis over the next couple of years. Last quarter, I highlighted three larger late-stage opportunities in the pipeline. Toward the end of the first quarter, we signed the agreement to provide REO auction services for a loan servicer. In April, we signed an agreement to provide foreclosure trustees services for a loan servicer and anticipate signing the second trustee agreement this quarter. We have completed the onboarding process for both WINS and began receiving referrals this month. These wins represent an expansion of services that we provide to existing customers. We also made progress ramping sales wins from 2023. In the fourth quarter of 2023, we signed agreements to provide REO renovation services for one of the larger owners of REO assets. We received our first renovation referrals last week. We anticipate referral volume from this customer will ramp as the year progresses. Another fourth quarter win was an expansion of wallet share with an existing customer in our higher margin trustee business. We started to receive an increase in referrals in January, which continued to grow through the quarter. We anticipate these referral volumes to ramp through the summer and stabilize thereafter. We ended the quarter with a total weighted average sales pipeline of $26.7 million of annual revenue on a stabilized basis. most of which we forecast will impact 2025 and beyond. The decline in the sales pipeline compared to last quarter primarily reflects our sales wins. Turning to the macroeconomic environment in slide nine. As we discussed on our call in March, we continue to believe that there are early signs of consumer financial stress and that these could be precursors to a rise in mortgage delinquency rates.
spk12: Moving to our origination segment in slide 10.
spk14: Our origination segment performed very well. Despite the 6% decline in industry-wide residential origination volume in the first quarter compared to the fourth quarter of 2023, the origination segment outperformed the market with service revenue growth of 30% and an adjusted EBITDA improvement of $900,000 to $500,000. We also grew service revenue by 7% and adjusted EBITDA by $1.2 million compared to last year. Revenue growth was driven by customer wins from our newer solutions and price increases in the LendersOne business. Adjusted EBITDA improved from revenue growth and cost savings and efficiency initiatives. As you can see on the slide, the origination segments gross profit, gross profit margins, adjusted EBITDA, and adjusted EBITDA margins all improved relative to prior quarters. Slide 11 provides a summary of origination segment sales wins and pipeline. We continue to focus on helping our LendersOne members save money and better compete. This is driving substantial interest in our solutions. On an annualized, stabilized basis, we won an estimated $4.2 million in new business in the first quarter. Our weighted average sales pipeline at the end of the quarter was $13.9 million. We are excited about our progress in the origination segment. During difficult times, lenders are more diligently examining their costs, and we are winning a lot of new business as a result. With sustained low origination volumes, we have been provided an attractive window of opportunity. We expect to benefit from this growth both today and even more when origination volumes return to more normal levels. Additionally, we continue to focus on rolling out new solutions to help our LendersOne members make more money. We believe the regular launch of new solutions to LendersOne members, combined with greater adoption of our existing solutions, will strengthen our value proposition for LendersOne members and support further revenue and earnings growth in our origination segment. Turning to our corporate segment in slide 12, we continue to bring down our operating costs. First quarter 2024 corporate adjusted EBITDA loss of $6.3 million was $1.8 million or 22% better than the fourth quarter of 2023 and $2.7 million or 30% better than the first quarter of 2023. The first quarter 2024 results included an estimated $1.2 million of net non-recurring benefits, and the first quarter of 2023 included an estimated $1.3 million of non-recurring benefits. Absent these benefits, first quarter 2024 adjusted EBITDA loss in corporate was 4% better than the fourth quarter 2023 and 25% better than the first quarter 2023.
spk12: The lower adjusted EBITDA loss also reflects our cost savings and efficiency initiatives. Moving to slide 13. In summary, I'm pleased with our first quarter performance.
spk14: We continue to win meaningful new business and are making good progress ramping 2023 sales wins in a historically difficult market. As a result, we anticipate that we will generate quarterly year-over-year service revenue and adjusted EBITDA growth compared to the same quarters in 2023 for the balance of the year. We believe we are also on track to achieve 13% to 32% service revenue growth over 2023 and adjusted EBITDA of between $17.5 and $22.5 million in 2024. If achieved, this represents an adjusted EBITDA improvement of approximately $52 million over a three-year period.
spk12: I'll now open up the call for questions. Operator?
spk07: Thank you, and at this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again, and then please stand by now as we compile our Q&A. First question comes from Mike Grondahl, with Northland. Mike, go ahead. Your line is open.
spk04: Hey, thank you. Just trying to think through, Bill, kind of your latest thoughts on when foreclosure sales might ramp. And is there any other leading indicator we should look to? You know, delinquent GSE loans, macro things on job loss, but where's your head kind of today for that ramp? And I don't know, what are you looking to to help you kind of benchmark it?
spk14: Yeah. Hey, Mike, thanks for the question. So I guess the first point I want to make is we're not waiting for the market to recover, you know, the default market to get back to normal or for delinquency rates to rise to improve our revenue and earnings. I think that's a really important message. But then specifically to your question, Mike, Look, I think the market is recovering less than we, at a slower pace than we expected. You know, I thought, you know, given those precursors, you know, rise in auto delinquencies, credit cards, student loan delinquencies, you know, we all thought these were good, solid indicators of what ultimately was going to happen or what ultimately should happen with mortgage delinquency rates. But today they're sitting, you know, roughly flat to where they were a year ago. And so we're paying close attention, and we do anticipate that over time the market will get back to normal. If you look, and I talked a little bit about this in my prepared remarks, if you look at loans originated, you know, and there's several million loans originated over the last couple of years that followed the run-up in home prices. And if you look at FHA loans that have 97% loan to value, even with the run up of home prices over the last couple of years, there's not a lot of equity in those homes. And so I think as the economy, as things get back to normal, you would expect the operating environment for those more recent cohorts of loan originations to return to a more normal operating environment. And by the way, I think Mike, if, if the market, we did run the math and say, what happens if the market were to get back to normal to this scenario we presented today. And I think you would see, you know, on a, when we, when we look back to the run rate scenario we've provided, I think in the third or fourth quarter of last year, you know, and, and we, uh, uh, we account for some, uh, potential runoff of, of our anchor client, uh, portfolios and, uh, and some other churn from customers. I mean, we could, in a normal environment, add another $30 million roughly of adjusted EBITDA to the scenario we presented today. So on top of the, I think it was $35 million of adjusted EBITDA in our scenario, you could add as much as another $30 million of EBITDA. Now, there may be a little bit of additional fixed costs we would add, but the EBITDA becomes quite interesting as that market recovers. So it's hard for us to tell when it's going to recover. We think some of the early signs exist, you know, that there could be some stress in the market, but we're not waiting for that to happen to grow our revenue and earnings.
spk04: Got it. And then two questions kind of related to slide 17. The first one, you know, the consolidated sales pipeline and when you guys had a bunch of wins in 23, right? Like $68 million worth. And you've cumulatively got about 8 million of that into revenue. If we look at the same time period, those five quarters presented, how should we think about the next? I don't know. I'll call it the remaining 60 million flowing into revenue.
spk14: yeah no that's a very good question mike so i think look what you're going to see is we're now ramping and you see that on the bottom row of that slide 17 where we did i think three and a half million so we are starting to ramp it you're going to see that we're going to continue to ramp uh the sales wins as the year progresses you know when we and look when we get to the fourth quarter we're not going to be quite at that uh run rate but i i think from an ebitda perspective you know, we're expecting to be north of a $30 million EBITDA run rate if you annualize our fourth quarter performance. So you're going to start to see the benefit. And again, we're being very conservative on the default market recovering. This is primarily from ramping sales wins on a more efficient cost base or lower cost base.
spk04: Got it. And then, you know, that's helpful, that exit run rate. And then my last question is, On the top line, attractive sales pipeline, I sort of get 3Q23, 4Q23. You know, those numbers were kind of flattish, and I think a chunk of the pipeline went down into wins. But then if I go 4Q23 to 1Q24, yes, you had 10 million fallout to wins. but the number dropped by about 8 million. Are you happy where your pipeline is? Do you kind of need to rebuild some of that now? Or, I don't know, just help us think about that pipeline, the size of it. What does it need to be to kind of continue to support these wins?
spk14: Yeah, I think you're right, Mike. The reason for the drop primarily reflects the sales wins. And we have some you know, pretty meaningful sales win. You're going to see, I think there's a footnote about it, but in April, we had a pretty good sales win that I talked about in my prepared remarks related to our trustee business. We think we're going to sign a second agreement, hopefully this quarter, which will go into the win column as well. Look, we're never happy with the sales pipeline. We always want it to be bigger, Mike. And we've got a really strong sales team that's done a very nice job of building the pipeline, you know, winning market share in a really tough market today, particularly on the default side. And so I'm pleased with the progress we're making, but I'm never, you know, I always want that pipeline to be bigger. And we talk about it internally, not just this quarter, but each quarter we set pretty aggressive goals around how we want to grow the pipeline. But we feel good. This is a weighted average pipeline, keep in mind. The actual pipeline is much higher than that.
spk04: Got it. Got it. Okay. Well, hey, that color is helpful. Thanks and good luck.
spk07: Thanks, Mike.
spk06: One moment for our next question. The next question comes from Raj Sharma with B Reilly.
spk07: Raj, go ahead. Your line is open.
spk03: Yeah. Hi. So, congratulations on the increase in profitability. I wanted to ask you some questions on this slide. You know, earlier stage, the business wins that are contributing to $88 million in annualized revenue increase, how is that split? You know, that's slide six. How is that split between the default services and the market? I mean, I'm assuming that has nothing to do with the HUBZoo side, the marketplace, and also how does that split with originations?
spk14: Sure. So, hey, Raj, let me turn to that slide.
spk03: You know, the service and revenue scenario.
spk14: Yeah, so you're on slide six. Yes. So of that $88 million, I would say a meaningful portion of that is tied to the growth of our renovation business. Then some of it is tied to the growth of these trustee wins. And I think this is sales wins through April 20th or so. It may be April 24th. So this includes the trustee business. The renovation business would probably be the two, the renovation being the largest, then the two trustee wins. And then the next largest would be probably, I don't have that right in front of me, but I think some of that REO auction work that we're doing for a loan servicer, that's a market share gain. And then there's some in the origination side, but it's pretty small, relatively speaking, compared to what's the growth in the servicer and real estate segment. So I think just to repeat, largely it's the renovation business, the two trustee wins, and then the ARIO auction business. There's a little bit of title wins in there as well.
spk03: Right. So all this is, if I'm correct in understanding, all these wins are in the earlier stage of the foreclosure process, basically. If the foreclosures market is not moving up considerably, and there's more loss mitigation, and there's more loan modifications, and other early... So this is the earlier stage. Could you talk about the trustee? Is the trustee referral expansion business, you are taking share there, and that's largely all of the gains, but are you... Do you make much money if there is... There's loss modification, loan modifications.
spk14: Yeah, so we're a foreclosure trustee, and I think it's 11 or 12 states. And there's milestone billing, Raj. And we're not assuming that each foreclosure file we receive makes it all the way through the end of the process. But in the milestone billing process, I think you're probably billing 60 or 70 percent of the total fees in the first couple months of receiving the referral. So it's not dependent on making it all the way through the end. And our analysis or forecast of what the revenue could look like on a stabilized basis is in today's market, not in a rising delinquency rate environment or a more normal delinquency environment. And yes, it's a very profitable business for us.
spk03: Got it. And then on the cost base, so clearly you've had some cost cuts and that's contributed and the increase in revenues contributed to the increase in profitability. Are you done with the cost cuts or your cost base currently is that to stay or are there more cost cuts to come more? You know, we haven't seen some of them.
spk14: Yeah, so let's talk just first about on the corporate side, there were some one-time benefits we got in the first quarter, but even if you normalize for those one-time benefits, we still brought the cost down compared to the fourth quarter. So we're not anticipating those one-time benefits to continue in future quarters. I think there's some modest, and Michelle, jump in, savings in corporate in the second half of the year. Michelle?
spk05: That's right. It's in the technology and communications line.
spk14: Yeah, so I think you'll see a little bit of savings there, maybe just a little bit in occupancy as well, a modest amount. But for the most part, I think we don't have any new set of initiatives beyond what's already been planned for the rest of the year. And then when you look at the business units, Raj, there will be a little bit of ramping of some costs in the second quarter. in anticipation of what we think is going to be very meaningful growth going into the third and fourth quarter. But that would just be sort of a normal, you know, you would expect there's going to be some hiring in advance of that revenue coming in in the second quarter. So we expect some modest revenue growth in Q2 compared to Q1. But EBITDA, there'll be a modest impact to EBITDA given some of the hiring in advance of this revenue getting to sort of a stabilized level. But we think that's very good hiring and certainly in line with our margin expectations. The new business is certainly in line with our margin expectations.
spk03: Got it. And just a couple more questions, if you can bear with me. The new, you know, obviously you are focusing on the earlier stage of the foreclosure process. You're having wins there. There is the normal run rate. scenario that you have talked about in the past, you know, 45 million of EBITDA and 235 million of revenues. How does that change? That changes incrementally by this 88 million?
spk14: Yeah, Raj, I think that's a very good question. Look, we did a bit of a back of the envelope, and there's, of course, several assumptions that go into how we think about this. But if the market were also to get back to normal, And now we're assuming that, you know, of our anchor portfolios, they continue to run off over the next couple of years. And we're also assuming a little bit of a churn on our pre-pandemic legacy business. If you take that into consideration and we're back to a normal operating environment, roughly at normal, you know, at pre-pandemic delinquency levels, we think EBITDA could grow by as much as what, Michelle, close to, you know, $20, $25 million today. That's probably closer to 25. And your revenue would grow by as much as $60 million above the scenario we presented today. So there's a lot of upside, even if delinquency rates just stay at the historically low levels, but the market gets back to normal. You know, the foreclosure initiations and foreclosure sale conversion rates gets back to normal. There's a lot of upside. In addition, our scenario we presented today doesn't include sales that take place beyond April 20th. You know, as we continue to win new business, that should improve our performance as well. We're just isolating the first quarter and pro forma analyzing the sales wins we've already had.
spk02: Got it. Thank you for that. That's really good color. Thank you for taking my questions. I'll take this offline. Thank you. Thank you, Raj.
spk07: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Bill Shepro for closing remarks.
spk14: Great. Thanks, Operator. We're very pleased with our first quarter financial performance and believe we're well positioned for the rest of this year and beyond, and thanks for joining today.
spk07: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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